OVERVIEW OF SUPPLY CHAIN PLANNING ISSUES Introductions – Names, prior work experience including summer, what do students hope to get from class? Mention some prototypical supply chains we will use repeatedly in class – Wal-Mart, 7-Eleven, Dell and Compaq, Amazon and Borders, Supermarket and e-grocer, W.W. Grainger and McMaster Carr - our goal is to identify factors that drive supply chain success and make a comparison between different supply chains. Administration of course - We will discuss concepts and methodologies for supply chain management. The context within which both will be learnt and discussed is provided by cases. Discuss role of case packet readings, cases and book. 5 cases due - 10% for each case 25% for final project 20% for final exam 5% for electronic posting Discuss key dates for submitting project. Three groups will be selected to present. Show course web page and its organization

Helpful References (Print) Chopra, S. and Meindl, P., “Supply Chain Management: Strategy, Planning and Operation,” Prentice Hall, 2004 Chase, Aquilano and Jacobs, “Operations Management for Competitive Advantage,” 9th Edition, McGraw Hill, 2001 Handfield, R.B. and Nichols, E.L., “Introduction to Supply Chain Management,” Prentice Hall, 1999

Helpful References (Internet) www.apics.org www.supply-chain.org www.apics.org www.supply-chain.org

Operations Management (OM) OM: Design, operation & improvement of the production systems OM: Concerned with conversion of inputs to outputs

OM Framework TRANSFORMATION Tangible vs. Intangible OUTPUTS Tangible vs. Intangible Direct vs. Indirect INPUTS People Plants Parts Processes Planning & control systems TRANSFORMATION Assembly Blending Storing

OM: Transformation Types Transformations can be: Physical Location Physiological Informational

Characteristics of Manufacturing Environment Increased product diversity Reduced product life cycles Increased awareness of the environment impact of products & manufacturing systems Difficulties of estimating the costs and benefits Changing social expectations

Manufacturing System Views Closed System Manufacturing is seen as an internal function buffered from suppliers, customers, and other functions Open Systems Manufacturing is seen as closely linked to suppliers, customers and other functions 

Distribution & Logistics A Closed System View R&D Marketing Finance Manufacturing Customer Service Purchasing Personnel Distribution & Logistics Suppliers Customers

An Open System View Manufacturing External Customers Suppliers Other Functions

Evolution From OM to Supply Chain OM View Supply Chain View Closed System Open System Manufacturer Orientation Customer Orientation Local Optimization Global Optimization Technology (hardware, software, multimedia, etc.) Local System Capabilities Enterprise System Capabilities

Changing Basis of Competition Yesterday Manufacturing company versus Manufacturing company Today Manufacturing company and it’s supply chain versus Manufacturing company and it’s supply chain

Customers Consumers External customers Internal customers Pay for your company’s final product External customers Receiving outputs from your company Internal customers Receiving outputs from you to others within the company

Supply Chain: Definition Supply chain is a network of interconnected organizations or organizational entities developed with the goal of getting the right product to the right place at the right time

Supply Chain: Scope Supply chain encompasses every effort involved in producing and delivering a final product, from the supplier’s supplier to the customer’s customer Efforts include managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing, information management, distribution and delivery to customers

Supply Chain: Flows (1) The following flows have to be managed in a supply chain: Materials Information Cash

Supply Chain: Flows (2) Material, Information, Invoicing Suppliers Manufacturers Distributors Customers After-sales support, Recycling, Order information, Payments

Supply Chain: Elements Supply chain consists of elements internal and external to the company These elements range from material producers to the customers All supply chain elements must be appropriately integrated for a company to be able to effectively compete in chosen markets

What is a Supply Chain? All stages involved, directly or indirectly, in fulfilling a customer request Includes manufacturers, suppliers, transporters, warehouses, retailers, customers Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service) Examples: Fig. 1.1 (Wal-Mart), Dell

What is a Supply Chain? Customer is an integral part of the supply chain Includes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products in both directions Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers (Fig. 1.2) All stages may not be present in all supply chains (e.g., no retailer or distributor for Dell)

What is a Supply Chain? P&G or other manufacturer Jewel or third party DC Jewel Supermarket Customer wants detergent and goes to Jewel Plastic Producer Tenneco Packaging Chemical manufacturer (e.g. Oil Company) Notes: Supply chain involves everybody, from the customer all the way to the last supplier. Key flows in the supply chain are - information, product, and cash. It is through these flows that a supply chain fills a customer order. The management of these flows is key to the success or failure of a firm. Give Dell & Compaq example, Amazon & Borders example to bring out the fact that all supply chain interaction is through these flows. Chemical manufacturer (e.g. Oil Company) Paper Manufacturer Timber Industry

The Objective of a Supply Chain Maximize overall value created Supply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)

The Objective of a Supply Chain Supply chain incurs costs (information, storage, transportation, components, assembly, etc.) Supply chain profitability is total profit to be shared across all stages of the supply chain Supply chain success should be measured by total supply chain profitability, not profits at an individual stage

The Objective of a Supply Chain Sources of supply chain revenue: the customer Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability

Decision Phases of a Supply Chain Supply chain strategy or design Supply chain planning Supply chain operation

Supply Chain Strategy or Design Decisions about the structure of the supply chain and what processes each stage will perform Strategic supply chain decisions Locations and capacities of facilities Products to be made or stored at various locations Modes of transportation Information systems Supply chain design must support strategic objectives Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty

Supply Chain Planning Definition of a set of policies that govern short-term operations Fixed by the supply configuration from previous phase Starts with a forecast of demand in the coming year

Supply Chain Planning Planning decisions: Which markets will be supplied from which locations Planned buildup of inventories Subcontracting, backup locations Inventory policies Timing and size of market promotions Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon

Supply Chain Operation Time horizon is weekly or daily Decisions regarding individual customer orders Supply chain configuration is fixed and operating policies are determined Goal is to implement the operating policies as effectively as possible Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders Much less uncertainty (short time horizon)

Process View of a Supply Chain Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)

Cycle View of Supply Chains Customer Customer Order Cycle Retailer Replenishment Cycle Distributor The supply chain is a concatenation of cycles with each cycle at the interface of two successive stages in the supply chain. Each cycle involves the customer stage placing an order and receiving it after it has been supplied by the supplier stage. One difference is in size of order. Second difference is in predictability of orders - orders in the procurement cycle are predictable once manufacturing planning has been done. This is the predominant view for ERP systems. It is a transaction level view and clearly defines each process and its owner. Manufacturing Cycle Manufacturer Procurement Cycle Supplier

Cycle View of a Supply Chain Each cycle occurs at the interface between two successive stages Customer order cycle (customer-retailer) Replenishment cycle (retailer-distributor) Manufacturing cycle (distributor-manufacturer) Procurement cycle (manufacturer-supplier) Figure (see previous power point) Cycle view clearly defines processes involved and the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process.

Customer Order Cycle Involves all processes directly involved in receiving and filling the customer’s order Customer arrival Customer order entry Customer order fulfillment Customer order receiving

Replenishment Cycle All processes involved in replenishing retailer inventories (retailer is now the customer) Retail order trigger Retail order entry Retail order fulfillment Retail order receiving

Manufacturing Cycle All processes involved in replenishing distributor (or retailer) inventory Order arrival from the distributor, retailer, or customer Production scheduling Manufacturing and shipping Receiving at the distributor, retailer, or customer

Procurement Cycle All processes necessary to ensure that materials are available for manufacturing to occur according to schedule Manufacturer orders components from suppliers to replenish component inventories However, component orders can be determined precisely from production schedules (different from retailer/distributor orders that are based on uncertain customer demand) Important that suppliers be linked to the manufacturer’s production schedule

Push/Pull View of Supply Chains Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES In this view processes are divided based on their timing relative to the timing of a customer order. Define push and pull processes. They key difference is the uncertainty during the two phases. Give examples at Amazon and Borders to illustrate the two views Customer Order Arrives

Push/Pull View of Supply Chain Processes Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand Pull: execution is initiated in response to a customer order (reactive) Push: execution is initiated in anticipation of customer orders (speculative) Push/pull boundary separates push processes from pull processes

Push/Pull View of Supply Chain Processes Useful in considering strategic decisions relating to supply chain design – more global view of how supply chain processes relate to customer orders Can combine the push/pull and cycle views L.L. Bean (Figure 1.8) Dell (Figures 1.9 and 1.10) The relative proportion of push and pull processes can have an impact on supply chain performance

Examples of Supply Chains Micron Electronics Inc. (A direct sales Manufacturer) Why has assembly of certain PCs been outsourced? What characterizes PCs or orders that have been outsourced? Why does Micron have only one manufacturing site? Why are individual orders shipped using FedEx and large corporate orders shipped using LTL? Why are individual orders merged in transit rather than at the assembly site itself? How much inventor of components and finished products is maintained?

Examples of Supply Chains 7-Eleven ( A Convenience Store) (Japan) One of the company’s objectives is to micro-match supply and demand by location, season, and time of day. Fresh food and distribution center. Toyota (A Global Auto Manufacturer) Global production and distribution network.

Examples of Supply Chains Amazon.com (An E-Business) Why is Amazon.com building more warehouses as it grows? How many warehouses should it have, and where should they be located? What advantages does selling books via the Internet provide over a traditional bookstore? Are there any disadvantages to selling via the Internet? Why does Amazon.com stock best-sellers while buying other titles from distributors? Des the Internet channel provide greater value to a bookseller like Borders with retail outlets or to an e-business like Amazon.com?

Stages of a Detergent Supply Chain

Supply Chain Stages